Ser­vices boost US pro­ducer prices; in­fla­tion firm­ing

Kuwait Times - - Business -

WASH­ING­TON: US pro­ducer prices rose more than ex­pected in Oc­to­ber, driven by a surge in the cost of ser­vices, lead­ing to the big­gest an­nual in­crease in whole­sale in­fla­tion in over 5-1/2 years. Yes­ter­day’s re­port from the La­bor De­part­ment also showed steady gains in un­der­ly­ing pro­ducer prices, which sup­port ex­pec­ta­tions of a grad­ual in­crease in in­fla­tion and keep the Fed­eral Re­serve on track to raise in­ter­est rates in De­cem­ber. The pro­ducer price index for fi­nal de­mand in­creased 0.4 per­cent last month af­ter a sim­i­lar gain in Septem­ber. In the 12 months through Oc­to­ber, the PPI jumped 2.8 per­cent, the largest in­crease since Fe­bru­ary 2012.

The PPI rose 2.6 per­cent year-on-year in Septem­ber. Economists had fore­cast the PPI edg­ing up 0.1 per­cent last month and in­creas­ing 2.4 per­cent from a year ago.

Prices for ser­vices ad­vanced 0.5 per­cent last month af­ter in­creas­ing 0.4 per­cent in Septem­ber. A 24.9 per­cent surge in mar­gins for fu­els and lu­bri­cants re­tail­ing ac­counted for al­most half of the in­crease in the cost of ser­vices last month. That helped to off­set a 4.6 per­cent drop in the cost of gaso­line. Whole­sale gaso­line prices soared 10.9 per­cent in Septem­ber in the af­ter­math of Hur­ri­cane Har­vey, which struck Texas in late Au­gust and re­duced re­fin­ing ca­pac­ity in the Gulf Coast area.

Gaso­line prices are fall­ing amid am­ple crude oil sup­plies. Last month’s rise in prices re­ceived by the na­tion’s farms, fac­to­ries and re­finer­ies was also driven by ris­ing costs for goods such as phar­ma­ceu­ti­cal prepa­ra­tions, fresh and dry veg­eta­bles, meat and to­bacco.

The dol­lar pared losses against a bas­ket of cur­ren­cies af­ter the data, while prices for US Trea­suries fell. A key gauge of un­der­ly­ing pro­ducer price pres­sures that ex­cludes food, en­ergy and trade ser­vices rose 0.2 per­cent last month. It has in­creased by the same mar­gin for three straight months. The so-called core PPI in­creased 2.3 per­cent in the 12 months through Oc­to­ber af­ter ad­vanc­ing 2.1 per­cent in Septem­ber. A weak­en­ing dol­lar could grad­u­ally lift core PPI. The dol­lar has this year lost 5.4 per­cent of its value against the cur­ren­cies of the United States’ main trad­ing part­ners. In­fla­tion has re­mained stub­bornly low, de­spite the la­bor mar­ket near­ing full em­ploy­ment. The main in­fla­tion mea­sure tracked by the Fed has re­mained below the US cen­tral bank’s 2 per­cent tar­get since mid-2012. De­spite mod­er­ate price pres­sures, the Fed is ex­pected to raise in­ter­est rates next month. There is cau­tious op­ti­mism that tight­en­ing la­bor mar­ket con­di­tions will spur faster wage growth next year.

The Fed has in­creased bor­row­ing costs twice this year. Oc­to­ber’s con­sumer in­fla­tion data sched­uled for re­lease to­day could shed more light on the fu­ture course of mon­e­tary pol­icy. Last month, food prices rose 0.5 per­cent af­ter be­ing un­changed in Septem­ber. Core goods in­creased 0.3 per­cent af­ter a sim­i­lar gain in the prior month. Prices for pas­sen­ger cars were un­changed last month. The gov­ern­ment in­tro­duced new mo­tor ve­hi­cle pric­ing mod­els into the sur­vey in Oc­to­ber. The cost of health­care ser­vices gained 0.3 per­cent af­ter be­ing un­changed in Septem­ber. Those costs feed into the Fed’s pre­ferred in­fla­tion mea­sure, the per­sonal con­sump­tion ex­pen­di­tures (PCE) price index ex­clud­ing food and en­ergy. —Reuters

In this Oct 27, 2017 photo, a worker helps as­sem­ble a Ford truck at the Ford Ken­tucky Truck Plant, in Louisville, Ky. Yes­ter­day, the La­bor De­part­ment re­ported on US pro­ducer price in­fla­tion in Oc­to­ber. —AP

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